Greenspan Tells Gulf To Drop Dollar
By al Jazeera
Jazeera" -- - -Alan Greenspan, the former chairman
of the US central bank, or Fed, has said that inflation rates in
Gulf states, which are reaching near record levels, would fall
"significantly" if oil producers dropped their US dollar pegs.
Speaking at an investment conference on Monday in Jedda, Saudi
Arabia, he said the pegs restrict the region's ability to
control inflation by forcing them to duplicate US monetary
policy at a time when the Fed is cutting rates to ward off an
Debate is rife in the Gulf on how to tackle inflation.
Levels have hit seven per cent in Saudi Arabia, the highest in
27 years and a 19-year peak of 9.3 per cent in the United Arab
Emirates in 2006.
"In the short term free floating ... will not fully dissipate
inflationary pressure, although it would significantly do so,"
Saudi and UAE central bank chiefs are in favour of retaining
dollar pegs, but Sheikh Hamad bin Jassim bin Jabr al-Thani, the
prime minister of Qatar, is pushing for regional currency reform
to avert possible unilateral revaluations designed to curb
According to Hamad Saud al-Sayyari, governor of the Saudi
central bank, floating the Saudi riyal would not be appropriate
for an economy that relies on oil exports.
"Floating is beneficial when the economy and exports are diverse
... as for the kingdom it remains reliant on the export of a
single commodity," he said.
The dollar peg was also defended by Sultan Nasser al-Suweidi,
the UAE central bank governor, at a conference in Abu Dhabi on
He said the policy was helping Gulf states attract foreign
"They did very well for our economies because it has led to more
capital flows," al-Suweidi said.
Qatar, has the region's highest inflation, and is considering
the revaluing of the Qatari riyal to combat inflation currently
at 13.74 per cent.
The exchange rate contributes to about 40 per cent of inflation
in Qatar, where the riyal is believed to be 30 per cent
"We prefer always to act with all the GCC countries," Sheikh
Qatar currently chairs the six-nation Gulf Cooperation Council.
"It's now time for the Gulf to have its own currency," he said.
Sheikh Hamad said such a currency should be "like the Japanese
yen or other currencies".
Deutsche Bank said last month that both Qatar and the UAE will
probably cut ties to the US dollar this year and track currency
baskets as Kuwait did last May.
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